This Week’s Ownership Update

Measured progress towards the official sale and lease agreement continues to be made as time winds down.

Though agreements in principle have been announced, the sale of the Hornets to Tom Benson is not official. Likewise, the lease amendment to keep the team in New Orleans through 2023-2024, the tax rebates the Hornets require, and the money to renovate the Arena have not been approved. These items are in various stages of development.

This bill controls a massive bond issue, part of which is the $50M for upgrades to the New Orleans Arena. Comparing this amount to the $2.6B in bonds and $3.9B in total financing, it is understandable that this bill has taken its sweet time getting out of the Ways and Means committee of the House. The half-page of description of these funds for the LSED, not the Hornets, in the 131 pages document should draw little attention, being just 2% of the bond issue and is being used to upgrade a state asset that has seen no major upgrades in 13 year existence.

This bill will likely see movement this week, but a meeting on the bill for today was cancelled.

This bill controls about $3.65M in annual tax rebates over the next 10 years. The amount of the rebates starts off below this level and increases annually.

It requires final senate approval and the Governor’s signature, which it is expected to get, making other means of approval unnecessary to comment on further. Update: HB1072 passed the Senate.

These tax rebates are a continuation of tax rebates the franchise is already receiving. The basis of the rebate is the Quality Jobs Program, which gives tax rebates to businesses that create jobs. In this case, the amount of the rebate is approximately equal to the amount of income tax associated with typical player payroll. These tax revenue source would not present if the team were not located here. The rest of the employees of the team will contribute about $1M annually in income tax. This does not include the indirect tax effect due to increase payroll to Arena workers, etc., spending by players and employees that generates tax dollars. Even with these rebates, the team is creating a net positive in terms of taxes. Tax rebates and the like can be touchy subjects in trying economic times, but this situation is far from the most odious.

Lease

I have not found any reference to the lease in the Legislature at this time. If you see something I don’t, let me know. Thanks.

I’m not sure what the mechanism really is for the State to approve or sign the lease, so perhaps the Legislature is not involved. I’ll be researching this process this week.

Sale

Tom Benson has made a down payment on the team and the NBA Board of Governors has given their nod from the financial perspective, but the sale is not final. The final approval is expected by the end of May according to David Stern.

In the end, the dates to remember are June 4th, the date by which the Legislative session ends, and July 1, the date on which the lease amendment takes effect if all the preconditions are met.

Threats

With three weeks left of the legislative session and seven weeks left before all the work must be done, there is plenty of time for all this to work out . . . and plenty of time for it to fall apart, like the sale in Atlanta and the Arena deal in Sacramento.

dcoop over at Hornets Report asked what the chances were of something going wrong with all of this. This isn’t a math problem, but a qualitative threat analysis kind of problem.

Most of the recent sources of turbulence had to do with owner finances or arena complications, not mutually exclusive. Our situation was basically due to the NBA foreclosing on the team due to Shinn’s finances and his inability to operate the team once the aid he needed from the NBA to run the team was maxed out. The Sonics were sold by Schultz to some extent because of arena complications, but also because he was not willing to take the financial risk associated the team as it was at the time. Alex Meruelo’s purchase of the Hawks fell through due to concerns by the NBA over his finances. Most recently, the Maloofs’ very public Compson-like fall in which they have tarnished the arena in which they play with their thrashing about have seemingly cemented themselves into not having the Kings at some point in the near future whether the move or not, whether they get an arena or not.

Benson seems to have no such issues financially, and any questions about the Arena are being addressed with HB2.

I see the biggest threats as Benson dying between now and when the deal is done, or divorce. The former is the most likely I’m assuming, and there are no indications that he’s in anything but good enough health to travel and work business deals.

Our Edge

There is money to be made here and a will to keep the team on many levels, including a governmental one. These things do not exist together in many markets, regardless of size. The small-market / large-market aspect of who `deserves’ a team stems from two factors. One was an analysis of where success was and wasn’t, where free agents were and were not, etc., without a good deal of regard for accounting for confounding factors. The second is intellectual laziness.

While market size is a factor in determining how much money there is for an owner to make in a market, it’s how much money that can be extracted from a market that really influences things. Seattle does not make it easy to extract money from their much-larger-than-New-Orleans’-market market, so they lost their team.

We, as a region and people, are taking pride in our entertainment assets and working with the NBA to make our facilities good for us, them, and other tenants.

Find a bigger city than New Orleans who can put on Mardi Gras, the Sugar Bowl, and the Super Bowl . . . perhaps with some NFL playoff games . . . all in a month, and I’ll show a city that could swipe our NBA team in a legitimate fashion.

Until then, we got this.

Don’t sweat this too much, but you have to keep an eye on the bureaucrats. Always, one eye on the bureaucrats.

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7 Comments

da ThRONe

May 14, 2012 at 9:50 am

Thanks Jason man!

I’ve been looking around the net to get a “date” as to when Benson will be officially the Hornets owner. Also trying to see what are the potential potholes in what otherwise should be just the formalities.

Thanks for the update. With my busy life I really depend on you guys to keep me informed, which you always do. As I have said before, I don’t trust the legislature. They mess around until the last minute and then some guy from north Louisiana comes up with some hairbrained and illogical reason why the “Hornets thing” doesn’t make any sense for the state(read: it doesn’t put any money directly into his money pot). Hope it gets done soon. Thanks for the info.

Ditto to above comments Jason. Keep up the yeoman’s service; your efforts are appreciated especially since I can’t devote time to Hornets and Saints in offseasons like I do during season because work gets in the way (damn work).